RenaissanceRe's (RNR) stock valuation has significantly declined, both in absolute terms and relative to peers, despite regaining its high return on equity levels from the early 2000s and reducing its exposure to catastrophe risk, BofA Securities said in a note on Wednesday.
Since the COVID-19 pandemic, RenaissanceRe's earnings power has surged while its catastrophe risk exposure has decreased compared to historical levels, according to the note.
BofA said that RenaissanceRe's temporary downturn from 2017 to 2022 was due to poor reinsurance pricing and significant catastrophe losses, but the company has rebounded strongly.
Historically, RenaissanceRe traded at similar price-to-earnings multiples as primary property and casualty insurers, but it now trades at a 35% to 45% discount despite its superior earnings performance. "The de-rating should revert, but outperformance can alone be achieved via superior capital compounding," the firm added.
BofA reduced its price target on RenaissanceRe's stock to $426 from $437 and reiterated its buy rating.
Price: 246.45, Change: +7.32, Percent Change: +3.06
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